The cost-effectiveness of independent housing for the chronically mentally ill: do housing and neighborhood features matter?

Health Services Research, Oct, 2004 by Joseph Harkness, Sandra J. Newman, David Salkever

There is strong evidence that the physical quality of a neighborhood has a salutary impact on mental health outcomes. Neighborhood problems are associated with 26 percent higher CMTY costs (p = .04) and a 79 percent increase in hospital-based mental health service costs if hospitalized (p<.01). Mental health service utilization may also be affected by the age of the housing stock: a 10 percentage-point increase in the fraction of housing units in a neighborhood that were built before 1940 is associated with a 5 percent rise in CMTY costs (p = .08).

COST-EFFECTIVENESS ANALYSIS

The cost-effectiveness of building and neighborhood features that were associated with reductions in mental health service costs was assessed by comparing the marginal effect of the feature in question on the combined costs of community-based and hospital-based mental health services with its marginal effect on building costs. Residential instability effects are not monetized, but their implications for the cost-effectiveness of building and neighborhood features are described. (Details of these computations are available from the authors.)

Results of this analysis demonstrate that the mental health care cost savings associated with certain building features dwarfed their impact on building costs, typically by an order of magnitude. With one exception--the neighborhood poverty rate--building and neighborhood features that reduce mental health service costs and residential instability are cost-effective irrespective of their effects on building costs.

The poverty rate had a statistically significant negative effect on the purchase price, resulting in reduced building costs, but it did not attain even a modest level of statistical significance for any mental health outcome. It thus appears that building cost savings could be achieved by siting properties for individuals with CMI in higher-poverty neighborhoods without running the risk of incurring substantially higher mental health care costs. Even then, however, the poverty rate is only a marginal factor.

The building cost models indicate that costs per unit fall with a rising proportion of tenants with CMI. Since a higher proportion of tenants with CMI was also associated with greater residential stability, buildings 100 percent occupied by tenants with CMI appear to be a cost-effective option. Further research on this question may be warranted, however, because mental health service costs were higher in buildings where a greater proportion of tenants were individuals with CMI, although this result achieved only marginal statistical significance. It may be particularly worth examining whether living in a building with a high proportion of tenants with CMI affects the quantity and quality of service delivery.

DISCUSSION

Individuals with CMI living in newer and properly maintained buildings were found to have reduced mental health care costs and less residential instability. Buildings with a richer set of amenity features, neighborhoods with no outward signs of physical deterioration, and neighborhoods with newer housing stock are also associated with reduced mental health care costs. All of these statistically significant results support Earls and Nelson's (1988) suggestion that higher quality of housing may lead to better mental health outcomes among individuals with CMI. Without even counting the benefits of reduced residential instability, the mental health care cost savings associated with these features far outweigh the costs of developing and operating properties that have these features. Since study participants were assigned to units on a first-come, first-served basis, there is little reason to suspect that these findings can be attributed to unmeasured mental or physical attributes of participants.